Schadenfreude revisited

Andrew Thomas is Executive in Residence at the Energy Policy Center of the Levin College of Urban Affairs at Cleveland State University.

In the energy chapter for our coming Cleveland State University Urban College book, “Road from the Rustbelt” (published by W.E. Upjohn Institute), I write about a Michael Kinsley editorial that first appeared in the New Republic on April 6, 1986.Even though I had studied German in college, it was the first time I had seen the word “schadenfruede,” which Kinsley translated roughly to “glee over the misery of others.”English has no word that quite expresses this sentiment so succinctly. But we sure do recognize the feeling, so we have adopted the word into our own language.But the editorial was not memorable for its use of a curious German word. What made it memorable was what it had to say about life at that time in the American Midwest and on the Texas and Louisiana Gulf Coast, both places near and dear to my heart at the time.What the Northeast and Midwest were gleeful about in April 1986 was the sudden crash of oil prices. Oil prices had fallen almost overnight from $36/barrel (bbl) to $12/bbl. In today's dollars, that would equate to a drop from about $100 to $30.As a result, Texas was experiencing “Michigan-like” unemployment rates of over 8%. Within a few years, two-thirds of the oil and gas industry in the United States would be laid off.

After years of watching both its wealth and its young people flee to Texas, the Midwest had reason to gloat. Relentless and dramatic increases in oil, natural gas and electricity prices had placed the Midwestern economy into a decade-long freefall, precipitating the rise of the Rust Belt. Now the Texas economy was collapsing.So Kinsley wrote about the Midwestern and Northeastern hopes for recovery. It makes for a great read today, and you can find the editorial here.It is memorable to me because I somehow had managed to be on the wrong side of both economic collapses. I grew up in Northeast Ohio during the 1970s, when my family struggled to adjust on my father's public school teacher's salary. Like many other young people from Ohio, I left for the Gulf Coast to work in the oil and gas business. But within a few years after I moved to New Orleans, the oil business was in shambles. I certainly understood what Kinsley was saying, but there would be no gloating for me.Today, nearly 30 years later, we are back to 1986 — sort of. Michael Kinsley is once again writing for the New Republic and we are once again looking back over a decade of economic decimation in the Midwest, wrought by $100/bbl oil. And today, once again, we are enjoying the collapse in pricing of an energy commodity — this time natural gas. I wonder what Kinsley would say now if he were to write this column.The following from his original editorial is worth quoting:

“What often gets overlooked is that Texas' decade of prosperity was made possible by a classic illegal price-setting conspiracy. If the OPEC oil ministers weren't beyond the reach of American justice, they would all be in jail. But even though it was foreigners who staged this rip-off of American citizens and businesses, it was other Americans who raked in most of the profits. That's because, throughout the energy crisis, most of the oil America consumed was domestic, not imported. The oil states were, in effect, auxiliary members of OPEC.”The situation today is much different. Today, we import most of our oil. Further, traditional American oil states such as Texas are getting a smaller and smaller piece of this largesse as their oil reserves are depleted. New oil states, like North Dakota, are emerging as major producers. Meanwhile, Ohio and Pennsylvania are becoming hotbeds of natural gas development. Importantly, natural gas prices have dropped, but oil prices have held fairly steady by comparison. In short, we have no obvious American graves to dance on.But there is nonetheless reason for optimism for the economy. With natural gas projected to sell at less than one-fourth the price of oil on a dollar-per-BTU basis for the foreseeable future, inevitably oil will be displaced by natural gas in America both as a fuel for transportation and as a chemical feedstock. When that happens, we can expect to see oil prices finally drop.When it happens, will we be able to enjoy some Schadenfreude again? And whose suffering might we enjoy? Well, the obvious targets would be the OPEC nations. But OPEC has not really been a force in price-fixing for 30 years. And it is not like the Nigerians and the Venezuelans don't need every penny they get. Still, we can perhaps smile when we think of some Saudi prince unhappily keeping his new Mercedes a year longer than he would like. For now, it seems we will just have to enjoy low-priced natural gas without the pleasure of someone else's concurrent misery.But it still feels pretty good.

Morning Roundup

Business headlines from Crain's Cleveland Business and other Ohio newspapers — delivered FREE to your inbox every morning. Sign up for the Morning Newsletter.